Endochondral bone formation includes a cascade of cellular events such as proliferation, maturation, hypertrophic conversion and calcification of chondrocytes and the cartilage replacement by bone. During these processes, hypertrophic conversion and calcification of chondrocytes (the late-phase differentiation) is a crucial process of chondrogenic differentiation. Indian hedgehog (Ihh), a secreted protein expressed in early hypertrophic chondrocytes, is thought to be involved in regulation of hypertrophic conversion via a feedback loop through the perichondrium. In the present study, we showed by Northern analysis and in situ hybridization that Smoothened (Smo), a key component in hedgehog signal transduction, was expressed in chondrocytes in both adult mice and mouse embryos at 16 days post-coitum in vivo, suggesting that Ihh directly acts on chondrocytes. We previously reported that Ihh, Patched and Smo were all expressed in differentiated ATDC5 cells. Exogenously administered mouse recombinant N-terminal protein of Ihh (mrIhh-N) upregulated the gene expression of type X collagen, a phenotypic marker of hypertrophic chondrocytes, as well as osteoprotegerin ligand (OPGL), a potent stimulator of osteoclastogenesis and osteoclast activity, while it did not modulate the expression of Ihh itself, bone morphogenetic protein (BMP)-4, BMP-6, transforming growth factor (TGF)-beta1 and TGF-beta2 in differentiated ATDC5 cells. Moreover, when added to the osteoclast cultures, mrIhh-N markedly stimulated the formation of resorption pits on dentine slices. Our data support the hypothesis that Ihh stimulated the late-phase chondrogenic differentiation in differentiated ATDC5 cells and upregulated the gene expression of OPGL in these cells.